Thoughts on Global Weather, Food Supplies and Inflation

A brief note: There is really nothing further to add from prior updates
of the S&P, HUI, XOI, USD or TNX as the patterns appear to be playing out
as forecast (the HUI is taking slightly longer and may be putting in a slightly
different count). Is there such thing as having an impartial Elliott Wave count...everyone
has a bias in some form or another. The way someone perceives market action
to follow (inflation or deflation) will affect their logical processes for
how labeling schemes "should" appear. This thought would be equivalent to a
downhill skier at the bottom of a hill expecting to magically ski to the top...right
idea but wrong location (the skier at the top recognized the landscape correctly
and got it right). For this reason, it is extremely important to marry fundamental
analysis in some degree to technical analysis in order to ensure interpretation
of the trend under study is correct. There are many individuals out there who
are fantastic Elliotticians, Neowavers, wavers etc. that all may have different
counts. If at the end of the day the same conclusions are drawn, there is no
bias except in the proposed labeling scheme of the individuals collectively.
I wrote a piece for our site some time ago titled "Signal to Noise Ratio"...during
periods of high background noise, attempts to label accurate wave patterns
within the congestion at 1-2 Degrees lower may be compromised. Focus more on
the larger scale pattern and how surrounding wave structures "piece together" (frameshift
analysis) rather than extremely short-term (1 minute data) patterns.

I have had several different requests the past few week or so to comment on
technical analysis of food etc. so a few comments about this. The important
things to understand when it comes to analyzing the grains, food etc. are available
supply, inventory levels, longer-term supply trends, and most importantly the
weather. Some of my reading the past week found one article that suggested
Earth was on the cusp of another ice
age. I did some further digging into this article and found a site that
forecasts space weather. A lack
of sunspots for the sun's 11-year cycle generally results in very cold weather
i.e. reduced crop output. The link shows that one sunspot is developing at
present, but a global decline by 0.7oC last year had something to do with a
lack of sunspots, in the midst of the CO2 craze here on good old planet Earth.
Update: the sunspots appear to be coming back on line now.

The sun is by far the rate-limiting step for temperature on Earth, since it
is our lifeline...literally. Without the sun, there would suddenly be 6.3 billion
people in suspended animation much like the Mammoths and other creatures that
experienced a flash frozen experience some 10,000-12,000 years ago. These sort
of climatic events happen quickly, which is 15-20 years, not one millennium
as some would like to suggest. Chances of an ice age occurring in the next
200 years or so is not likely...there are far more important things to worry
about the demise of North America, Europe and Northern Asia (due to 1.5 km
high glaciers) such as food and water supplies and of course, Peak Oil.

I think it was last week when I stated at some point Canada might be forced
to ban grain exports in the not too distant future (10-15 years) in order to
feed those within its own borders first. This drew some noted criticism and
perhaps I should have provided some data to support my hypothesis for this
future event. I live in Manitoba, as many of you are aware, so I pay attention
to the local weather. Winnipeg receives its water supply via an aqueduct from
Shoal Lake, which happens to be approximately 100 miles to the East within
the Ontario border (this part used to belong to Manitoba until 1881, actually,
the Manitoba/ Ontario border until 1881 was right down Main Street in Kenora
Ontario, but I will not get into this). There is no industry in this area (forestry
is non-existent except for the locals harvesting wood to stay warm) and northwestern
Ontario has a lot of water...so Winnipeg is fine. However, what generally falls
on the field is all the farmer can count on for growing crops, unless it is
a cash crop like potatoes, watermelon etc. that require constant irrigation.
Runoff this year was minimal and episodes of high water levels accompanying
ice jams were non-existent on many river systems.

Overall, percent moisture conditions for the topsoil in southern Manitoba
at present are low enough to cause crop
failure in certain areas. Click on "soil conditions" and go to the very
bottom portion of the web page under "Attachments". Granted, the data is six
months old, but rain has not been a regular thing the past six weeks. If the
dry weather persists, crop output could be severely affected. There have been
some really dry years in Manitoba that resulted in crop failures, so the present
situation is not an unusual occurrence. Surprisingly, northern Manitoba at
present is busting at the seams with water, which creates a dilemma for generation
of hydro electricity in 1-2 years from now when the water from the south heads
north to meet the ocean. I can not remember the percent moisture required in
topsoil for seed germination, but 25-30% comes to mind. Chances are this year
will see enough grain produced to export across the border, but for those who
were unaware, the US required importing grain 2-3 years ago for internal demand
(and the US is one of the bread basket countries of the world). Everyone in
today's society forgets how high crop yields are due to implementing fertilizer,
genetically modified grains resistant to pests, pesticides,
herbicides, harvesting efficiencies, storage, transportation etc. All of the
above is incredibly energy intensive and at present, every calorie present
in food at the table requires 10 calories of energy input.

In the good old days, with Agrarian lifestyles, 20-30% of the crop went to
feed farm animals helping to work the land, etc. while another 30% of the land
lie in fallow. At any given time, 50% of farmland was essentially off limits
for open markets. Of the 50% land remaining, consider the farmer requires to
save 10-15% of the harvest for future crops. So, the energy input to bring
1 calorie to the table lied somewhere between 0.5-0.6 calories, along with
much sweat and toiled labour (compare this to the 20 fold increase for bringing
food to the table today). Without oil, crop output with 2% of the population
producing food (this number was around 70% at the turn of the century) would
decline by 90%. Reduce 6 billion people by 90% and there are 600 million people.
Population curves that top out the way humankind presently is can see reductions
swing beyond this, often to 95%. So, when there is talk of Peak Oil, cooler
weather or warmer weather (cooler weather is actually worse because the growing
seasons are reduced), take into consideration that food shortages "will", not "if" become
an issue in the coming 2-5 years, if not sooner.

As an aside, I have been cruising our local SuperStore awaiting to purchase
more Basmati rice...the shelves as of 9:30PM last night were absolutely cleaned
out of rice, even the cheaper Rooster Brand white rice. Everyone I know is
now aware of rice shortages and are starting to stock up. Supposedly, a shipment
is due overnight, so I am off to pick up some this afternoon. Generic 20 pound
bags of flour are now $11.48 each, up from $10.48 last week. The only items
that have not really moved in price are white and brown sugar and suprisingly,
oats. The old thing of switching to something else when the other becomes too
expensive is going to apply to food, so watch for the price of oats and sugar
to soar. Sugar is around $10 per 20 pound bag at present, but I expect the
price to rise much higher, likely $40-50/bag within 5 years or less. Don't
believe me, go look at a chart of sugar over the past 20 years and see where
the price is relative to the 1980 peak...it is going to be going much higher,
so stock up on it now before it rises to levels that discretionary spending.
Sugar was a luxury in the 1800's and if history is any guide, chances are it
will be again in the not too distant future. As an aside, avoid purchasing
shares in any food producer company, such as Nestle, Kelloggs etc. Food prices
are going to cause a shift to people eating home made granola, oatmeal, oatmeal
with apples, oatmeal with cranberries, oatmeal with tapioca etc.

Some may wonder why I am focusing so much on food lately. By making the purchases
up front now, it could literally result in saving thousands of dollars and
the mental stability of knowing that there will be food on the table tomorrow
rather than having to run to the store and potentially fight someone over a
bag of rice...yes there have been some deaths around the globe due to food
shortages as people literally fight for the last remaining bag.

Applying this thought to gold and silver bullion, there is an extreme shortage
of silver, similar to rice, maybe worse, yet the price remains relatively untouched
the past 6 months. I am not sure if anyone can remember seeing food shortages,
panic setting in for those with little money hoping to be able to feed their
children etc...I am not from that generation, but I do a lot of driving around
our city to do visual surveys of what people are doing and I am starting to
see this, particularly in the poorer neighbourhoods. Soup kitchens are having
more and more people show up, food banks...it would appear they were held up
in broad daylight because the vault is nearly empty. This sort of "fight or
flight" mentality occurs during inflationary cycles because of the concept
of reduced purchasing power per unit time. Some people on the Internet suggest
that the psychology of the market is presently wrapped up in deflation...I
suggest reading this
book. The book is rather dry, but draws many parallels to the US at present.
Whether we will have full-blown hyperinflation or simply inflationary purgatory
is up for debate, but M3+Credit of the global money supply suggests global
inflation...any other interpretation is simply flawed and ill conceived (I
have written extensively about this over the past 3 years and have nothing
new to add...simply click on the Archive section of this web site for prior
reference based upon title). Instinct brings out the "Inner squirrel" in everyone
and hoarding becomes an important survival instinct. This will apply to gold
and silver as people want to park their money into something tangible...not
because of greed but because of fear. Fear is by far the most dangerous emotion
to base any decision around, since the outcome will likely be illogical.

Do not be a part of the crowd standing in line trying to buy gold and silver
bullion at prices 2-3 times above current levels, or staring at a computer
screen wondering if a stock at $25/share should be purchased, when it could
have been obtained 1-2 years previously at $3-5/share. The instinct to click
the "buy" button will be overpowering for most and this behaviour will literally
feed and drive the price of gold, silver and their related stocks much much
higher. By facing the future uncertainty now, logical financial decisions can
be made, rather than illogical financial decisions in a state of chaos later
on.

More for subscribers....

For further viewing of prior work, simply click on the Archive section of
this site. I update the AMEX Gold BUGS Index, AMEX Oil Index, US Dollar Index,
10-Year US Treasury Index, S&P 500 Index as well as commentary on market-related
issues and new technical analysis findings. Recently, the TNX had positive
reversal that failed and has had a significant decline since then. The S&P
also had a positive reversal with a measured move to 1612 fail and it was hypothesized
the downside move should equal the upside potential, which lies just above
1200 (this is the minimum downside target). A future article will be written
about this idea along with 2-3 different editorials, so there will be no updates
for the HUI for some time. We follow some 60 stocks, with a focus on core positions
and stocks that actually make up our personal portfolio. As well, the keeper
of the site, Captain Hook writes 3-4 articles per week discussing macro issues,
ratio analysis of various markets and an in-depth study of put/call ratios
and shorting candidates.

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